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The soaring glass-and-steel skyscraper along the Hudson River in lower Manhattan that is the
Goldman Sachs Group's
GS -0.2711298816413786%Goldman Sachs Group Inc.U.S.: NYSEUSD191.27
-0.52-0.2711298816413786%
/Date(1425418545672-0600)/
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1145152
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10.8466104342393Market Cap
83547749086.712
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1.2568077084206117% Rev. per Employee
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new headquarters bears no mention of the name of its occupant, one of the most powerful investment-banking firms in the world. Understated yet ambitious, the three-year-old Harry Cobb-designed edifice conveys a spirit of confidence and a hint of pedigree -- just the right tone if you happen to be walking in with $10 million, the minimum required to be a customer of Goldman's private bank. Most clients bring far more.

Still, Goldman Sachs is believed to have one of the wealthiest client bases in the business, long culled from the ranks of newly rich entrepreneurs who have relied on Goldman's advice on bringing their companies public or selling to other firms. Goldman, for instance, handled the IPOs of Sears Roebuck & Co. and Ford in the early 20th century.

Tucker York, head of private wealth management in the U.S, and Sharmin Mossavar-Rahmani, the unit's chief investment officer.
Brad Trent for Barron's

Now, Goldman is aspiring to be a bigger presence, and it recently offered Penta a peek inside its operations. "We definitely have ambitions of being the best-in-breed, highest-quality advisors to our clients," says Tucker York, head of private wealth management in the U.S., ensconced in an office filled with New York Yankees baseball memorabilia. Former Yankees owner George Steinbrenner was a client, and the firm remains closely connected to the Yankees.

York's vision for the private-banking business mirrors that of CEO Lloyd Blankfein, who over the years has often described wealth management as an area where the firm planned "to do more and be in more places."

This is a trend across Wall Street, where more emphasis is being placed on private-wealth-management units for growth -- a response to the increased regulation and greater scrutiny of risk-based businesses and stricter capital requirements that came about as a result of the financial crisis of 2008.

Goldman Sachs is walking the walk: About 12% of the 70 folks who just made partner at the firm are based in asset management, compared with 4.5% in 2010. Nonetheless, Goldman's private-banking business has felt the sting of the fallout from the financial crisis of 2008. "The biggest impact was new business," says York. "It has grown over the past several years, but it would have grown more without this. The net effect is that the upfront time we're spending with people before they decide to invest with us is longer. There were enough things said where people wanted to do a longer period of due diligence. That's completely understandable."

Best in breed doesn't necessarily mean biggest. York, a lanky and high energy 52-year-old, says that Goldman's goal is to provide clients the intimacy of a boutique outfit with custom-tailored solutions for a range of needs, including not only investment strategies, but also tax-planning, philanthropy, and estate-transfer guidance. In carrying out all this, Goldman clearly benefits from the breadth and scale of its global resources, such as access to hot initial public offerings and private-equity investments. The firm also can help clients get into hedge funds, real estate, structured fixed-income products, and master limited partnerships.

The idea is to form lasting bonds with clients and their children and their children's children.

"Many casual relationships don't really work," York explains. "We have real and meaningful relationships with our clients. We're very important to them, and they are, in turn, very important to us." Indeed, York and some others in the private wealth-management group plan to attend a client's three-day wedding in India soon.

York, who has worked in the Goldman unit since graduating from Harvard in the 1970s, recently returned from a recruiting trip to Harvard Business School, which has strong ties to the firm. He's seeking to add to his stable of financial advisors, a group that typically has advanced degrees in business or law and is comfortable in discussions, not only with clients, but also with their lawyers, accountants and other consiglieres.

"This is a relationship business, and long-term relationships matter," says York, who is looking for folks he hopes will choose to be at Goldman for the long haul to provide a sense of continuity for wealthy families. "The focus for us is to have the right quality and caliber of people come into the business and stay in the business for a long, long time."

Most clients are in the U.S., and so that's where the bulk of Goldman's financial advisors are based: 400 in 13 locations around the country, each catering to the needs of 20 to 30 clients. An additional 150 to 200 advisors work abroad. Compared with some rivals, Goldman almost looks small. Bank of America, which includes Merrill Lynch and U.S. Trust, has nearly 22,000 advisors working out of 850 offices around the U.S.

Goldman has a laser-sharp focus on where the money is being made, establishing offices in Silicon Valley and the mid-Atlantic region, and, more recently, in Washington, D.C., among other hot spots. Overseas, it has set its sights on the newly rich in China and Brazil, and is expanding in both emerging economies.

BY MANY ACCOUNTS, where Goldman really stands out in the wealth-management business is in the quality of services its private-client staffers provide.

"Goldman brings a lot of resources to support the relationship manager in solving issues for clients," says Jamie McLaughlin, principal at J.H. McLaughlin & Co., based in Darien, Conn., a consultant to family offices and the wealth-management industry. "They have a flotilla of specialists that do everything from serving their clients' philanthropic needs and solving real-estate issues to managing the disposition of illiquid assets. Most can't compete on that level."

Services aside, however, families are looking for impartiality, transparency, and competitive costs and fees, says McLaughlin. On that front, Goldman maintains that it is competitive, charging, on average, 0.50% to 1% of a client's assets, depending on the extent of risk. If the client chooses to invest with a manager outside Goldman -- an option today but one that would have been unthinkable years ago -- the client will be charged that firm's underlying management fee plus a fee from Goldman.

The private bank has been around since Goldman's early days as a partnership when IPO and merger-and-acquisition clients routinely asked to invest their newly minted windfalls alongside the assets of the partners. For years, the private bank functioned largely as a broker-dealer, simply relying on the firm's institutional research to recommend stocks and bonds, and using its trading desk to execute orders. This changed at the time of Goldman's IPO in 1999, when the asset-management and private-wealth-management businesses were merged, and the firm took a more active approach to overseeing client's financial affairs.

At 200 West, meetings with wealth-management clients occur not on the lower floors amid the scrum of traders and computer screens, but in the sanctity of the top floor, the 43rd, with its sweeping panoramic views of New York. After all, it's the long view that Goldman Sachs wants its clients to focus on. And taking the long view is, currently, a luxury almost exclusively enjoyed by the ultra-rich.

"This is the time to be a long-term investor," says Sharmin Mossavar-Rahmani, a managing director of Goldman and chief investment officer of the private-wealth-management group. Open and cheerful, Mossavar-Rahmani sits across from a visitor at a marble-topped oval conference table in her office high above Ground Zero.

However, she adds: "There are very few market participants in today's environment who can truly be long-term investors. Who can really afford to be a long-term investor? The ultra-high-end client is the only one we could think of, because they generally have more money than their spending needs. Second, their assets are multigenerational, and, third, they are not accountable to anyone."

As a member of the investment committees of New York Presbyterian Hospital and Manhattan's elite Trinity School, the pearls-and-pinstriped Mossavar-Rahmani knows intimately the pressures faced by endowments, foundations, and pension funds to find the right measure of portfolio risk at a time when interest rates are at record lows and other funding sources, such as government reimbursements, are less certain. In almost all cases, these groups have been forced to limit their investment horizons -- limit their risk. Not so the ultra-rich individual investor.

As far back as Oct. 5, 2008, in the weeks immediately following Lehman Brothers' collapse and the sale of Merrill Lynch, when the entire financial world seemed to freeze, Goldman Sachs's private-wealth-management team issued a Sunday-night communiqué to clients, reassuring them that the U.S. was not on a path to another Great Depression and recommending that they gradually add to their equity positions. Two weeks later, amid pervasive pessimism, private-banking clients -- folks who Goldman refers to as those with "enough sleep-well money to actually sleep well" -- were advised to keep buying stocks and look for 1250 on the S&P 500 by the end of 2009, up from 941 at the time. The index eventually reached 1115 that year, but not before hitting an intraday low of 667 on March 6.

Even for someone taking the long view, that was a stomach-churning ride. As a result, Goldman spent the past two years revamping its traditional asset-allocation models, most of which were based on techniques developed 40 to 50 years ago, according to Mossavar-Rahmani. The firm shifted its focus from diversification in asset classes to diversifying across the broader risks associated with them. The new model includes measures of market, inflation, interest-rate, and short-term credit risk and market-wide liquidity conditions; and systematic exchange-rate risk and risks specific to emerging markets.

DRAWING FROM AEROSPACE ENGINEERING, the model includes powerful tools to account for uncertainties in the estimates of expected returns, and to more precisely gauge the risks. The approach, by Farshid M. Asl and Erkko Etula, both in the investment-strategy group at Goldman Sachs, is described in the fall 2012 edition of the Journal of Portfolio Management.

At the moment, Goldman's private-wealth-management group sees European stocks as good value and believes that emerging markets could get cheaper. U.S. equities are fairly valued, and the recommendation is to keep positions neutral.

"Neutral doesn't mean not owning it," says Mossavar-Rahmani. "The surest and best way to add value to a portfolio is to be exposed to the economic engine of the U.S. The way to get exposure to that great wealth is through owning U.S. companies."

That's the perspective that clients have come to expect from 200 West.